Masahiro Tanaka's team really needs him, for financial reasons

By Yuki Yamaguchi and Yuko Takeo, Bloomberg News

Wednesday, January 15, 2014

TOKYO — Masahiro Tanaka, the Japanese pitcher who went 24-0 last year, is headed for a major payday in the United States. Hiroshi Mikitani, the Internet billionaire whose company has rights to Tanaka, won’t fare nearly as well.

After being given the chance to negotiate with U.S. teams last month, Tanaka, 25, could land a contract worth $100 million as well as richer endorsement deals. Though Mikitani’s Rakuten may reap $20 million for giving up Tanaka, the e-commerce company and its Golden Eagles baseball team will forgo much more in lost merchandise sales, ticket revenue and advertising. It’s an unusual loss for a sports-team owner and for Mikitani.

The Harvard-educated Rakuten chairman is Japan’s third- richest man and he didn’t get there by backing down. A unit of Rakuten sued the Japanese government for banning online drug sales and the billionaire has clashed with the country’s biggest corporate lobby over the prospects for nuclear power. When it came to Tanaka however, Mikitani, 48, may have simply had too much to lose if he forced the pitcher to stay put.

“Mikitani had a very difficult decision to make,” said Robert Whiting, author of “You Gotta Have Wa,” a book on the culture of Japanese baseball. “He considered Tanaka’s feelings and his performance. He’s had a season that’s hard to duplicate — I’d say it may never be duplicated. It was a hard decision because either way Mikitani loses.”

Tanaka has until 5 p.m. New York Time Jan. 24 to sign a contract with an MLB team.

Mikitani, who has a fortune of $8.6 billion, according to the Bloomberg Billionaires Index, founded the predecessor to Rakuten in 1997 and has built it into a company worth 2.3 trillion yen ($22 billion). He started the Tohoku Rakuten Golden Eagles about a decade ago, following companies such as dairy producer Yakult Honsha Co. in using a sports franchise to raise their profile. The Eagles won their first Japan Series championship in November, led by Tanaka.

A spokeswoman for the Eagles said Mikitani wasn’t immediately available for comment. She asked not to be identified citing company policy.

The timing for Mikitani couldn’t have been worse. In the past, Japanese clubs have received payments of more than $50 million for letting players go to the U.S. Under an agreement between the American and Japanese leagues struck in December though, the maximum amount U.S. teams can pay for the rights to negotiate with Japanese players was capped at $20 million.

On top of that will be any lost revenue from lower merchandise or ticket sales, and advertising with Tanaka’s image. That could total 6.1 billion yen, said Katsuhiro Miyamoto, an economy professor at the graduate school of Kansai University in Osaka.

Losing Tanaka likely will hurt the Golden Eagles’ chances of making the playoffs, where they could generate another 1.74 billion yen in sales of tickets and merchandise based on capacity crowds at their home stadium, he said.

A poorer performance on the field also may cost the team a potential 800 million yen in sales of Tanaka-related products. Adding losses from fewer advertisement and broadcasting opportunities brings the total potential impact to 6.1 billion yen, according to Miyamoto.

Tanaka requested to be posted so he can play in the U.S., joining other Japanese players including Ichiro Suzuki, Hideki Matsui, Daisuke Matsuzaka and Yu Darvish who’ve jumped to MLB teams.

“As a baseball team, we want to preserve precious talent,” the Eagles said in a statement Dec. 25, the day they announced Tanaka could negotiate for a U.S. team. “However, in the seven years since Tanaka joined, we recognize his contribution to the team and owner Mikitani has decided to allow him to test his strength in the Major Leagues.”

Tanaka visited the Los Angeles area earlier this month and met with officials from at least one MLB team, ESPN reported. Clubs interested in signing the right-hander include the Yankees, the Los Angeles Dodgers and the Texas Rangers, according to ESPN.

Before the Dec. 17 agreement to cap negotiating fees, the highest MLB bidder won the right to strike a contract, resulting in larger team fees.

When Darvish, another pitcher, was auctioned two years ago, the Texas Rangers bid $51.7 million for the right to negotiate with him. The Rangers paid an additional $60 million for Darvish’s contract, the Los Angeles Times reported.

The Boston Red Sox paid a posting fee of $51.1 million to the Seibu Lions for Matsuzaka in 2006, according to the Boston Globe.

While other Japanese team owners agreed to the new fee cap, Mikitani resisted the change.

“The Japanese baseball league is not a training or farm system for the major leagues,” Mikitani said in a posting on Twitter last month.

Rakuten was the only NPB team that opposed the new agreement with MLB, according to a person with knowledge of the situation. The team said the new system is “extremely unfair.”

Tanaka may be able to get a contract of more than 10 billion yen over six years, according to Marty Kuehnert, former General Manager and current Senior Adviser to Rakuten Eagles.

“Japan’s lost Ichiro Suzuki, Hideki Matsui, Daisuke Matsuzaka and a lot of other stars,” book author Whiting said. “It’s hurt the Japanese leagues.”

Mikitani may have decided to let Tanaka go to avoid alienating the star and his fans. Domestic fans often support local players’ aspirations to compete in the U.S., where they can earn more money and become international stars.

Mikitani’s company, which competes with Yahoo Japan Corp. for online sales, posted a 24 percent rise in third-quarter e- commerce revenue to 33.8 billion yen in part because of promotions after winning the Pacific League championship. The Eagles defeated the Yomiuri Giants for the Japan Series title in November.

Tanaka, known as Ma-kun to Eagles fans, won his second Eiji Sawamura Award, which is given to the league’s top pitcher, for his performance. The pitcher’s success, along with that of the team, may see the Eagles post its first profit since 2005, buoyed by increased sales, Rakuten said.

Rakuten will post 518 billion yen in sales last year, according to the average estimate of 17 analysts surveyed by Bloomberg. That would be the highest on record for the company.

“There was certainly the Ma-kun effect,” Yuki Nakayasu, a Tokyo-based analyst at Credit Suisse Group AG said, before Tanaka was released. “Rakuten’s e-commerce is rising” and losing the star player is a risk, he said.

The Eagles’ promotion for Rakuten e-commerce was “incredibly successful,” said Nakayasu, who estimates that winning the championship could push up Rakuten’s e-commerce sales by 3 billion yen last year.

Rakuten gets about 60 percent of its sales from Internet services including its e-commerce site, while its financial business accounts for about 30 percent. About 7 percent comes from the division that includes the baseball business. The company doesn’t disclose standalone sales and profit for the baseball business.

Tanaka made a “great contribution” to the Eagles’ championship season, the club said in an e-mailed response to questions before he was posted. “However, the win was achieved by the entire team, and posting profit is as a result of the efforts of the whole baseball team.”